International Relations

The Impact of the Red Sea Crisis on Global and Indian Trade

  • Attacks by Yemen’s Houthi militia have made the Red Sea, a vital maritime route via the Suez Canal, hazardous for cargo ships since November.
  • Alternative Route: As a result of this, ships are now taking the lengthier Cape of Good Hope route, hurting global trade and increasing expenses.


LocationBetween Africa (Egypt, Sudan, Eritrea, Djibouti) and Asia (Saudi Arabia, Yemen).
ConnectionThe Bab el Mandeb strait and the Gulf of Aden connect it to the Indian Ocean.
LengthApproximately 2,250 km long.
WidthThe width varies from 355 km at its broadest point to 20 km at the Tiran Strait.
Maximum DepthAbout 7,254 feet (2,211 m) in the central median trench.
Unique FeaturesOne of the saltiest bodies of water on the planet. 
Notable for its diverse environment, which includes huge coral reefs.
ClimateThe neighbouring desert and high evaporation rates contribute to its extreme salinity.
Economic ImportanceMajor shipping route; oil-rich region with substantial petroleum resources on the sea’s borders.

Impact on Indian Trade

  • Shipping Routes Change: As a result of the attacks, over 90% of India’s western hemisphere freight is being redirected through the Cape of Good Hope.
  • Contractual Implications: Depending on the type of buyer-seller contract, the impact varies, with certain consignments being held up due to increasing freight expenses.
  • Freight Cost Increase: Freight costs have increased dramatically, up to sixfold in some circumstances, affecting all consignments, particularly low-value, high-volume cargo and perishables.

What this means for India’s imports

  • Increased Import Prices: The lengthier transit time and crises may result in higher import costs and a need for better inventory management.
  • Impact on Fuel costs: Given India’s reliance on crude oil and petroleum product imports, the crisis may have an impact on initiatives to cut fuel costs.
  • Tanker Market Dynamics: Despite increasing freight prices on affected routes, tanker rerouting has not been widespread.

Global and Indian Reaction

  • The UN and the US have condemned the Houthi attacks, and the US is requesting additional cooperation for ‘Operation Prosperity Guardian’ to secure safe sea lanes.
  • Monitoring in India: The Indian government is keeping a careful eye on the situation, with the Commerce Secretary addressing potential consequences with officials and trade organisations.

Sector-Specific Impact

  • Commodities Most Affected by Sector-Specific Impact: Chemicals, polymers, and petrochemicals are particularly hard hit due to their inability to absorb freight increases.
  • High-Value Goods Alternatives: Airlifting is an alternative for high-value, low-volume commodities, however most affected goods are huge in volume.
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